XOM ,RDS.a and CVX, the big integrated oil companies

xom feb 22 2014RDS.a feb 22 2014cvx feb 22 2014crude oil feb 22 2014

All three yield about 3% and have p/es of about 10x to 13x. Royal Dutch is the only one to have a perfectly clear B-wave, but then it also consumes an inordinate amount of time (4 years) doing nothing. Exxon sports a clear wedge (as the c in the B-wave) which is equally bearish. It also does that Mnt. Everest thing by climbing to just over $100  and falling back from exhaustion. Chevron  is the only one of the three that (arguable) has a 5th wave going into the recent top. 5th waves are normally completely retraced (and then some) during the next retracement. What all three have in common, at least using EW rules, is that they are about to lose 1/2 of their value.

Interestingly, only Royal Dutch resembles the actual movements in the value of crude oil. Of course these are integrated oil companies so there is no compelling reason why they would track the stuff all that closely. But other than Fed. policy there is also no compelling reason why the American oil giants should outperform. BP, by the way, is still trading at about 40% below its peak. It resembles RDS.a but at much lower relative values. It yield about 5% and trades at a p/e of 7x. On a relative basis it might actually be a buy. It is the only one that may have completed an A-B-C correction (or a more complex A?) as can be seen on the semi-log scale chart below;

bp feb 22 2014

RDS.A / CVX , Royal Dutch paired with Chevron, and Crude Oil

rds cvx pairs trade 29 10 2013

crude oil oct 29 2013

Royal Dutch  (the ADRs) and Chevron are about the same in size at roughly 225 bln. As you can see, we hope, Royal has followed the price of crude oil quite accurately whereas the Chevron guys have chosen to ignore the fundamentals almost entirely. Whether or not the various counts in these charts is correct is not all that important, but we do expect oil to drop back to the $40 level or so sometime in the future. The triangle, if there is one, would suggest that oil might actually go up, but the B-wave looks pretty compelling. In any event the extraordinary spread between the two integrated companies is, in our opinion, about to collapse. The spread now at about 100% since 2006 is probable as good as it gets. Sell one Chevron against a buy of two shares of Royal. Given the higher dividend on the Royal (by almost 2%) you actually will have a positive carry.

XOM and RDS.a the integrated oils, update.

From the blogs, Nov 19, 2010, and July 13 ,2010;

Buy it here,…………………………………………………………………..Sell when it gets to about $75

xom jul 2010XOM nov 2010

The buy at around $57 was based on the near perfect wedge that had developed. The sell at around $75 was based on the simple fact that these wedges nearly always completely retrace, so that was a minimum expectation. Here is where we are today;

XOM jul 2012

So the stock went a bit above the $75, but more importantly it took a lot longer courtesy the meddling central banks. For almost two years now the stock peaks between $85 and $87 without making any real headway. Here it is in detail;

XOM jul 2012 s

This thing is a wedge, pennant, diagonal whatever. When, not if, it breaks down we will be back at the bottom and then some. Wave 4 of previous degree is not at $53 but at $30, easily attainable if C becomes 1.62x A. The stock was downgraded yesterday by one of the big European houses (UBS?) but the target was raised to $110, go figure.

Royal Dutch did something similar. Here is the old (Nov. 2010) and today’s chart;

rds.a nov 2010rds.a jul 2012

This time the target was dead on but, so far at least, the anticipated drop has not yet happened, but neither has the opposite. If this is a 1-2, 1-2 situation things could get nasty real fast. The target, as with XOM is also around $30.

RDS.A, Royal Dutch

rds.a aug 8 2011

Among the integrated oil companies Royal Dutch has served best in predicting what oil might do. The (very clear B-wave) announced well in advance that oil was not going to $200, at least not for a while. Here we are at about $60 with very clear overlap, virtually making an immediate rise to higher highs virtually impossible. This leaves only a more complex correction which would call for a drop to about $40 anyway, or straight down. Eitherway it is not likely that oil will hold last nights lows of $79.